Software Firmen kaufen, aber nicht zum Wachsen bringen

0:00I am part of a group that buys and holds software businesses. >> Cool. >> I have four businesses in my group currently. Uh three of them we sell software to property management businesses and the other one is to event management businesses. >> Vendor Smart guys? Where you at? Yeah, yeah, yeah. >> I've already had a conversation. >> saw your stuff? >> [laughter] >> All right. >> Um as a group at the minute I do just under 12 million in revenue.

0:25Um I'd like to be 90 million in the next 5 years and that'll be a combination of acquiring new businesses as well as helping the current businesses to grow. Um what is stopping me is I feel I'm constantly balancing how to help my existing businesses to continue to grow as well as going on the acquisition journey as well. So I'm really interested to understand from you, do you have a specific playbook of how you balance those two things effectively to scale?

0:52>> Yeah, I have um people who run them as their entire thing. God's truth. So our Vendor Smart portfolio is run entirely by a different team. I don't even I don't even okay the checks anymore. >> Mhm. >> They just let me know. And I'm like, sounds good. Um so I I I this is me being honest with you. Like um I my highest leverage So like my the the vast majority of my time is spent generating demand.

1:22Cuz that's the highest leverage thing I can do. >> Mhm. >> So if I build the brand, I will be able to get all the talent I need. I'll be able to get all the deal flow that I need. I'll be able like I'll be able to every if I just do this one thing. And so that's that tends to be how I think about my job, which is like if I could only accomplish one thing um and that one thing on its own would accomplish all of our other objectives, then I would just do that and then I will hire people to do everything else. Um so with regards to your thing, do you have do you have a capital constraint or you just need deals? Like do you have the capital in order to to to

1:49>> Yep, I have capital. Yeah. >> Okay, so you just need deal flow? >> Mhm. >> Oh, okay. Um So then each of the individual portfolio companies, how did you buy those? Just Is it a fund that you're you're managing right now? >> it's part of a much bigger group of businesses that have their own cash. >> Okay, got it. Um All right. And so, the Did you kick out the founders when you bought them or do you >> No, we cuz we're a buy and hold acquirer, their preference is that the founders stay and help to continue to grow and develop with us.

2:18>> Do they roll 20% or 30% something like that? >> Uh as in like do they take Do they exit? Is that what you mean? >> Well, yeah. Do you Do you buy 100% or do you >> Sorry. No, we buy 100%. >> Okay, you buy 100% and then they just get like cash bonuses upon growth and whatnot. Okay. Um So, there is Is the issue that the founders aren't following your instructions? Or you need better like What's the What's the problem with the organic growth side? Cuz the acquisition side is really straightforward. You just need to like we need to generate more demand, which is either outbound or trade shows, conferences, things like that, which is a different process.

2:50Um we can happily walk you through it, but like I'd say it's more of the >> the existing businesses. Some of the ones that we acquire are less um developed and therefore need more time than others. So, that's where it can take more of the time when actually to get to the 90 million it's really needed to focus more on the acquisition as well. >> They're so small. That's the problem. It's why most most [clears throat] PE doesn't doesn't go there.

3:14Cuz it's so difficult uh because they have like 100 problems that are wrong all at the same time. Um and then the founder who got to that level like is at that level for a reason. And so, usually it is the founder that's the problem. At least that's been my observation. And then the business sits limited by that person. So, how do you So, how do you do both? The acquisition dot side for deals is straightforward. I'm I am curious about like that deal box that you have uh for the you know, if they're averaging three-ish million or is it one of them that's like 10 and the other three are

3:46>> Uh no, they're all pretty much similar size, but clearly one of uh buy businesses that are much bigger than that. >> Yeah, I think that some of these problems will actually disappear if you get the better businesses. >> Mhm. >> Because right now I would imagine, hopefully not overstepping, but I'm I'm guessing that you're probably playing babysitter a little bit to the founders that are there um and dealing with like the regular fires that are coming up all the time in the business and the decisions that need to get made rather than like what is the one thing that if we just get this right, this business 10x's.

4:13>> Mhm. >> And so good founders already do that innately and mediocre and bad founders don't. They just get sucked into the day-to-day and then they just stay and then they just stay mediocre for a very long time. So it is probably a who problem. It's difficult because of the nature of the acquisitions that you did. Removing founders is tough. Um but it probably is the like what's the root? It's probably that. Um To give you guys context like I've did in between in 2020 in 2022 and 2023 I did 24 acquisitions.

4:45Um and I basically sold or gave back my shares in 19 of those companies. Cuz it just wasn't worth it. Because as much as I could say, "Hey, this is sound business advice." They just weren't winners. Because winners aren't going to come and say like, "Yep, we're stayed the same for the third year in a row." Like they will die or they will win.

5:13And I'm just trying to find those people. And I would say that I spend a greater percentage of my time looking for that now. >> So I need to find more winners with the nature of the businesses. >> You might find winners that are there and and or be able to put someone in. Um cuz I mean this is the classic like private equity story, not your story, but like business is going great, founder gets removed, business tanks because private equity doesn't know how to run the business, um and it's like you just need somebody who is good and those people are rare.

5:40Um but one of the best telltale signs of that if you're going to do the buy and hold is just bigger. Because the entrepreneur who can get to 20 million in ARR probably a better entrepreneur than somebody who caps at three and then sells at that point. Also, just from an ambition perspective, I don't know what kind of multiples you were paying for those, you know, particular businesses. But if if they're like it's very difficult to motivate someone who only needed to make 20, 30 million dollars in their life and then they made it. Because then it's just like this is the business I build and these are the people that I built it with and they have families and I just want to, you know, I just want to keep this going so that everybody's, you know, taken care of. And it is not the mindset of somebody who's trying to get, you know, go from three to 30.

6:19>> [snorts] >> In my opinion. That's a it's a more it's a more nuanced but probably true answer than here's the three-step process. It's probably the founders of the companies you bought aren't dogs. And you probably need dogs. >> So just buy bigger businesses with the right talent. >> Yeah. >> Okay. >> And I think every investor uh reinvents the wheel. Uh myself included. >> [laughter] >> I was like, "Oh my god, I could take these things like so easily cuz you can see how you can take something from 5 million or 10 million." Like, "Oh my god, I could take this to 50 and like I can basically buy this for nothing and flip it for a hundred million. Like that'll be a great deal. I should do that a bunch." And then you realize why you get paid so much to do this because it absolutely sucks and you actually have to build the entire business. And then you're like, "If I had to build this thing from scratch, I wouldn't have picked this business."

7:06>> [snorts] >> And then you you kind of you reinvent the wheel and you're like, "Oh, this is why they just buy bigger shit." >> Great. Thank you very much. >> If you are a business owner and you are not growing as fast as you'd like, I'd like to give you a free gift. So, my team and I put together the 100 million dollar scaling road map, which is basically 200 hours of us looking over all the portfolio companies we've had and what stages of growth they went through and more importantly, where they got stuck and how they got past it. And so we broke it into these 10 stages and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at and the most important part for you, what to do for each of functions of the business across product, marketing, sales, customer success, recruiting, IT, human resources, and finance. And so, no matter what you're struggling with, someone else has already struggled with it and solved it. And so, I'd like to give you this thing absolutely free. You can go to acquisition.com/roadmap, plug in your business information, and if you want us to actually help you deconstruct the business and you're trying to scale, we'd love to help you out. On the thank you page, you can just book a call with my team, and we will look at the business, see if we can help, and if we can, we'll invite you out to Vegas, and we'll do this in person live.